Part II - Forms of Business Ventures in Sweden

Sole Trader

• Only a natural person may act as a Sole Trader (“Enskild firma”). A person living abroad (not legally domiciled in Sweden) must appoint a manager who will be held responsible for the business in Sweden. The manager must be legally domiciled (folkbokförd) in Sweden.

The remaining five forms of business ventures are open to foreign companies as well as natural persons interested in starting business in Sweden.

Limited Company

• The most common way of establishing a business in Sweden is through a company limited by shares (“Aktiebolag”). All shares in the company may be owned by foreign nationals or companies and no special acquisition permit is required.

• Swedish limited companies are divided into two categories, private companies and public companies. Only public companies can offer their shares to the general public and have to have a share capital of at least SEK 500,000 while the minimum share capital of private companies is SEK 100,000.

• It should be noted that a new Swedish Companies Act is proposed to enter into force on January 1, 2006.

Branch

• A foreign company may do business in Sweden through a branch with its own independent administration. A branch does not require any actual capital investment by the foreign owner, as the branch has no share capital. It is not considered as an independent legal entity but as a part of the foreign parent company.

EEIG

• The next alternative, the European Economic Interest Group, EEIG, is only open to nationals and companies domiciled in the European Economic Area, EEA. The EEIG is especially useful in a situation when several companies in at least two of the EEA countries want a separate entity for a special project.

European Company (SE)

• Another alternative, open only to companies within the European Union is the European Company or SE (“Europabolag”).

Trading Partnership and Limited Partnership

• Going back to more traditional Swedish company forms, one way is to establish a Trading Partnership (“Handelsbolag”) or a Limited Partnership (”Kommanditbolag”). In a Trading Partnership all partners are liable for the company´s commitments, but in a Limited Partnership one or several partners can agree to be liable for all debts of the company while the remaining partners are liable only for their investment, which has to be at least SEK 1 (one).

Economic Association

• Finally, an Economic Association (”Ekonomisk Förening”) could be established. It is, however, an open association mainly for co-operative activities and, in principle, it cannot refuse membership to anyone. There is no demand for a starting capital similar to a share capital of the limited company. The business activities of the association should be to the financial benefit of the members.

Part I - Forms of Business Ventures in Sweden

There are several forms of business ventures in Sweden; all are open to natural persons and legal entities domiciled within the EEA. However, certain forms are also open to non-EU companies.  

The business venture forms recognised under Swedish law are the following:

1. sole trader (“Enskild firma”)


2. Swedish subsidiary i.e. a Swedish corporation/limited company (“Aktiebolag”)


3. branch office (“Filial”)


4. European Economic Interest Group, EEIG


5. European Company (SE)


6. Trading Partnership or a Limited Partnership (“Handelsbolag or Kommanditbolag”)


7. Economic Association (”Ekonomisk Förening”).

In the next post I will very shortly give some basic facts about these six forms. I will then devote one or more posts on each of these forms later on.

Part VI – Responsibility of parent companies - After-treatment measure responsibility under the Swedish Environmental Code

• A much debated question in Sweden – probably only among environmental lawyers - is to what extent a shareholder or a parent company could be considered to be as an operator and thus could be held responsible for clean-up and after-treatment measures.

• The Swedish Environmental Code defines operators as “persons who pursue or have pursued an activity or taken a measure that is a contributory cause of the pollution”.

• It has been forcefully argued that this should be interpreted to include a parent company in the group of operators if the activities of a subsidiary constitutes a natural part of the parents group of companies and if the parent has exercised a legal and factual substantial control over the activities of the subsidiary. Against this has been argued, equally forceful, that such an interpretation is much too wide and not in line with the language of the Code.

• Chapter 10 of the Swedish Environmental Code is intended to fulfil the obligations of Sweden under the European Union directive 96/61/EC (the IPPC directive). This directive states clearly that an operator is “any natural or legal person who operates or controls the installation or, where this is provided for in national legislation, to whom decisive economic power over the technical functioning of the installation has been delegated.”

• However, a complication is that the translation into Swedish – if translated back to English – does not use the expression “who operates or controls” but “who operates or holds”. There is an obvious difference between controlling an installation, on the one hand, and holding an installation, on the other. It has, been argued that, unless the Swedish courts adopt the wider interpretation and includes parent companies as operators under certain circumstances; Sweden will be in breach of the IPPC directive.

• Until a ruling is made by the Supreme Court of Sweden, it is impossible to say whether a parent company may be responsible for the clean-up and after-treatment measures of a subsidiary.

Part V – Due Diligence investigations related to real property - After-treatment measure responsibility under the Swedish Environmental Code

• As mentioned in the previous post a purchaser of real property in Sweden may acquire a liability for any necessary clean-up and after-treatment measures; provided that the company conducting the environmentally hazardous activities causing the pollution on the real property is not able to pay for these measures.

• A purchaser of real property has a general obligation to carry out a substantial and thorough investigation of the real property he is buying according to the Swedish Real Property Code (cannot find any English translation!). Caveat emptor! It is not 100 per cent clear that the investigation to be carried out according to the Swedish Environmental Code is equal to the one under the Real Property Code but it is generally assumed that this is the case.

• It should, however, be noted, as very important point, that no agreement between the seller and the purchaser will influence the purchaser’s after-treatment measure responsibility towards the authorities; even if such an agreement may give the purchaser the possibility to seek compensation from the seller e.g. due to a breached guarantee.

• The due diligence investigation under the Swedish Environmental Code must first of all include a thorough ocular investigation. Should any land unevenness, rusting barrels or drums be visible, this must cause added investigations e.g. digging and analyzing soil samples. Normally, an investigation under the Swedish Real Property Code could be limited to non-destructive investigation. The purchaser need thus not open up floors or walls or start digging, but if there is an indication that something might be wrong such investigations have to be made.

• It is also clear that a purchaser has an obligation to find out what kind of business activities have been carried out on the property to be purchased. Any indication that such activities could have entailed a risk for pollution, such aspects must be deemed to cause additional investigations.

• The purchaser’s investigation under the Swedish Real Property Code may be limited because of information from the seller. This is not the case for investigations under the Swedish Environmental Code. The reason for this is, of course, that in the first case, it is a matter solely between seller and purchaser. Under the Environmental Code, however, such information does not effect the purchaser’s obligation to investigate, because one of the purposes of the Code is to bring about these investigations and thus to reveal pollution.

Part IV ... cont - Purchase of business assets including real property - After-treatment measure responsibility under the Swedish Environmental Code

• As a purchaser of real property you have to safeguard yourself against unwanted and unknown liabilities to the extent possible and you should take the following steps.

• Carry out a thorough environmental due diligence to ascertain the possible risks of environmental liability resting on the company. This should preferably be done separate from the normal real property due diligence as the investigators called in most probably should have different fields of expertise. I will revert to some questions related to the environmental due diligence in a later post.

• Provide for a compensation under the purchase agreement from the seller if, and, when, the purchaser is required to undertake and pay for the clean-up and after-treatment measures.

• However, such a provision is not enough, as the purchaser’s liability is only triggered if the company conducting the environmentally hazardous activities is unable to pay for the clean-up and after-treatment measures. This company will most probably be the seller, and if he cannot pay for these measures he will not be able to compensate the purchaser. Some kind of additional independent guarantee will be need provided by a parent company or a bank or financial institution.

• The contractual provision will only apply between seller and purchaser. The legal claims under Chapter 10 of the Swedish Environmental Code will still have to be handled and borne by the purchaser.

The next post will cover “Due Diligence investigations related to real property”

Part IV - Purchase of business assets including real property - After-treatment measure responsibility under the Swedish Environmental Code

Considerations in connection with the purchase of the business assets including real property of a Swedish company

• If you purchase the business assets of a company and that purchase includes real property, you have also acquired the risk of being liable for any necessary clean-up and after-treatment measures; provided that the company conducting the environmentally hazardous activities causing the pollution is not able to pay for these measures. However, if you did not know or should not know of the pollution you are free of the responsibility.

• If we assume that the seller did not inform you of any pollution and even if he guaranteed that the real property was free from pollution, you, as a purchaser, may have acquired liability, because you ought to have known.

• It is a general principle in Swedish law that as a purchaser of real property, you have an obligation to investigate the real property thoroughly. You are not able to claim that you should be entitled to rescind the purchase contract nor to compensation for “hidden defects”, if such defects would have been possible to find at a competent investigation of the real property prior to the purchase. The same principle may be said to apply also to pollution.

To be continued

Part III - Purchase of shares - After-treatment measure responsibility under the Swedish Environmental Code

As a purchaser of shares in a Swedish company you have to consider the environmental aspects mentioned in earlier posts.

• If you purchase the shares of a company which has been or is conducting environmentally hazardous activities, owning real property or buildings or even leasing real property, a building or only a part thereof, the shares of that company  will introduce any and all of its environmental responsibility under the Swedish Environmental Code into your own group of companies. The change of owner does of course not change in any way the fact that the company in question may have liabilities under the Code.

• As a purchaser you have to safeguard yourself against unwanted and unknown liabilities to the extent possible and you should take the following steps.

• Carry out a thorough environmental due diligence to ascertain the possible risks of environmental liability resting on the company.

• Provide for a compensation under the share purchase agreement from the seller if, and, when, the company is required to undertake and pay for clean-up and after-treatment measures. Such a provision will only apply between seller and purchaser. The legal claims under Chapter 10 of the Swedish Environmental Code will still have to be handled and borne by the company.

The next post will cover “Purchase of business assets including real property”

Swedish codes in English

Some Swedish codes have been translated into English. The main problem is that the government does not seem to be able to keep them up to date.


A summary of the available material is found in this List of translations into English of Swedish Codes.  


The major Swedish codes translated are

• The Swedish Code of Judicial Procedure

• The Administrative Court Procedure Act

• The Swedish Penal Code

• The Swedish Enforcement Code

• The Swedish Environmental Code

You will find some information in English about the Swedish Rules of Family Law
and Public Access to Information and Secrecy with Swedish Authorities


The Proposal for a Swedish Code of Corporate Covernance has also been translated.

Part II – Responsibility Issues - After-treatment measure responsibility under the Swedish Environmental Code

After-treatment measures

• Environmental damage requiring clean-up and after-treatment is considered to have occurred when pollution may cause detriment to human health or the environment. The rules covering after-treatment of contaminated sites can be found in Chapter 10 of the Swedish Environmental Code and are mainly based on the Polluter Pays Principle.  

• The party who carries the liability for the pollution must, to a reasonable extent, also perform or pay for investigations of the possible pollution and then for the after-treatment measures necessary to counteract damage or detriment to health or the environment.

Responsible parties

• According to Chapter 10, it is primarily the operator, former or present, conducting the environmentally hazardous activity, which is responsible for the clean-up of the pollution. In case of several operators contributing to the pollution, they are held jointly and severally responsible.

• It is possible to hold persons or legal entities which can be considered as holding controlling interest over the actual operator as a liable party. I will revert to this question in a later post.

• If none of the operators can perform or pay for restoration and after-treatment measures, then the landowner is liable in the second instance provided that the landowner when purchasing the land was neither aware of the pollution nor should have been aware of it.

• If the person responsible cannot be identified or is insolvent, the public pays for the after-treatment.

The next post will cover “Purchase of shares”

Part I - General Issues - After-treatment measure responsibility under the Swedish Environmental Code

Aim of the Swedish Environmental Code

• The Swedish Environmental Code states in its first chapter that its purpose is to promote sustainable development in order to assure present and future generations in Sweden a healthy and sound environment.  

Rule of environmental consideration

• Chapter 2 of the Code contains a general rule of environmental consideration applicable to all activities.

• The Swedish Environmental Code applies to all operations and measures that affect the environment or human health. It is thus not important if the operation or measure takes place as part of commercial or of non-professional, private activities.

Environmentally hazardous activity

• Environmentally hazardous activity is defined in Chapter 9 i. a. to refer to any use of land, buildings or fixed installations that involves an emission to land, the atmosphere or water including all other nuisances to human health or the environment as e.g. light. noise, vibration and radiation.

• It is important not to read too much into the word “activity” and also to view the concept of ’use’ in a long-term perspective. A rubbish dump is considered an environmentally hazardous activity, even if waste is no longer deposited, as long as the waste may result in pollution.

The next post will cover “Responsibility Issues”

After-treatment measure responsibility under the Swedish Environmental Code

The Swedish Environmental Code was made part of Swedish law on January 1, 1999 and then replaced 15 different laws and regulations in the environmental field. You will find a short résumé of the Code here and the full text here.

One of the most important chapters in the code from the point of view of the general business lawyer is Chapter 10 with the heading “Polluted areas - Responsibility for investigation and after-treatment”. I will try to give some pertinent information about this chapter through a number of posts.